UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): March 11, 2004
FRED'S, INC.
(Exact Name of Registrant as Specified in Charter)
Commission File Number 00-19288
Tennessee 62-0634010
(State or other jurisdiction (I. R. S. Employer
of incorporation or organization) Identification No.)
4300 New Getwell Road, Memphis, TN 38118
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(901) 365-8880
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits:
Exhibit
Number Description
------------- -------------------------------------------------------
99.1 Press release issued by Fred's, Inc., dated
March 11, 2004
Item 12. Results of Operations and Financial Condition.
On March 11, 2004, Fred's Inc. issued a press release announcing,
among other things, its quarterly earnings results for its fourth quarter and
full fiscal year ended January 31, 2004. A copy of the press release is attached
as Exhibit 99.1 to this Current Report on Form 8-K.
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRED'S, INC.
(Registrant)
By: /s/ Jerry A. Shore
----------------------------
Jerry A. Shore,
Executive Vice President and
Chief Financial Officer
March 11, 2004
3
INDEX TO EXHIBITS
Exhibit
Number Description
--------------- --------------------------------------------------------------
99.1 Press release issued by Fred's, Inc., dated March 11, 2004
4
Exhibit 99.1
FRED'S 4300 New Getwell Road, Memphis, Tennessee 38118
Contact: Jerry A. Shore
Executive Vice President and
Chief Financial Officer
(901) 362-3733, Ext. 2217
FRED'S REPORTS 22% INCREASE IN FISCAL 2003 NET INCOME
----------------------
RECORD NEW STORE OPENINGS AND SOLID COMPARABLE STORES SALES GROWTH
CONTINUE TO PRODUCE STRONG SALES RESULTS
MEMPHIS, Tenn. (March 11, 2004) - Fred's Inc. (Nasdaq/NM: FRED) today reported
record financial results for the fourth fiscal quarter and year ended January
31, 2004.
Net income for the fourth quarter of 2003 increased 21% to $13.2 million or
$0.33 per diluted share from $10.9 million or $0.28 per diluted share in the
year-earlier period. For fiscal 2003, net income increased 22% to $34.4 million
or $0.87 per diluted share from $28.2 million or $0.72 per diluted share for
fiscal 2002. All per share results have been adjusted for a three-for-two stock
split distributed on July 1, 2003.
Retail sales by Company stores for the fourth quarter of 2003 increased 17%
and total sales for the quarter rose 16% to $378.0 million versus $325.3 million
in the same period last year. On a comparable store basis, sales increased 5.1%
for the quarter. For fiscal 2003, retail sales by Company stores increased 19%
and total sales for the period rose 18% to $1.303 billion compared with $1.103
billion in fiscal 2002. Comparable store sales for fiscal 2003 increased 5.7%
over the prior year.
Commenting on the results, Michael J. Hayes, Chief Executive Officer, said,
"Fiscal 2003 was a period of significant growth for Fred's, as the company
achieved new milestones in several key areas. Despite the challenges presented
by a sluggish economy and those inherent in our efforts to oversee rapid store
growth and the ramp-up of our new distribution center, Fred's fundamentals
continued to improve, producing another year of record sales and earnings. Sales
growth for the year reflected the opening of 79 new stores as well as a 5.7%
increase in comparable store sales - in line with our target range of 5%-7%
growth. These sales gains combined with an enhanced gross margin to drive
operating margins again this year and generate a 22% increase in annual earnings
and 21% higher fourth quarter earnings, matching the outlook we expressed in
early January 2004.
"Because of the record pace of new store openings last year, which pushed
us past the 500-store mark, we recently raised our sights for expansion in
fiscal 2004 and now target between 85-100 additional new stores in the coming
year," Hayes added. "Importantly, we also have strengthened our ability to
support this more rapid growth due to steadily increasing productivity at our
second distribution center, which opened almost a year ago, and with the ongoing
expansion of the number of stores it supplies. The enhanced logistics solutions
this center offers, in tandem with our distribution center in Memphis, enabled
us to lower distribution costs 70 basis points as a percent of sales last year,
despite an overall rise in transportation costs, and provide a solid supply
platform to support chain growth."
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FRED Reports Fourth Quarter, Year-end Results
Page 2
March 11, 2004
Concluding, Hayes said, "As we look ahead to fiscal 2004, we remain excited
about the opportunities we see for continued growth and earnings improvement.
Our strong pharmacy department, coupled with a compelling convenience/value/mix
offering to the customer, continues to provide us with a competitive
differentiation that sets Fred's apart in the marketplace. With these strengths
in mind, we remain enthusiastic about our goals of achieving 15%-17% sales
growth in fiscal 2004, based on our new store expansion plans and an expected
overall increase of 4%-7% in comparable store sales. Considering this outlook,
we believe the Company is positioned to increase earnings per share in fiscal
2004 to a range of $1.03 to $1.10."
Fred's gross profit for the fourth quarter of 2003 was $104.2 million
compared with $89.9 million in the prior-year period, representing an increase
of 16% for the period. Gross margin for the quarter was 27.6%, unchanged from
27.6% last year. Gross profit for fiscal 2003 increased 21% to $368.3 million
from $305.0 million for fiscal 2002. Gross margin for fiscal 2003 was 28.3%
versus 27.6% last year, reflecting higher initial markup from product purchases,
increased vendor allowances and better control of shrinkage.
Selling, general and administrative expenses for the fourth quarter of 2003
improved to 22.5% of sales from 22.7% of sales in the year-earlier period. In
the quarter, favorable productivity improvements in distribution expenses were
offset somewhat by increases in store and pharmacy operating expenses. For
fiscal 2003, selling, general and administrative expenses increased to 24.3% of
sales compared with 23.7% of sales in 2002. The increase in expenses as a
percent of sales for the year-to-date period resulted primarily from costs
associated with the Company's expansion of store and distribution facilities
during the first three quarters of 2003.
Operating income for the fourth quarter of 2003 increased 19% to $19.1
million from $16.1 million in the year-earlier period. Operating income was 5.1%
of sales in the fourth quarter of 2003, up from 4.9% in the fourth quarter of
2002. Operating income for fiscal 2003 increased 21% to $51.7 million from $42.7
million in the prior year. Operating income for fiscal 2003 was 4.0% of sales,
up from 3.9% of sales last year.
Fred's Inc. operates 522 discount general merchandise stores, including 26
franchised Fred's stores mainly in the southeastern United States. For more
information about the Company, visit Fred's website on the Internet at
www.fredsinc.com. A public, listen-only simulcast and replay of Fred's year-end
conference call may be accessed at the Company's web site or at
www.fulldisclosure.com. The simulcast will begin at approximately 10:00 a.m.
Eastern Time today and a replay of the call will be available beginning at
approximately noon Eastern Time and will run until April 11, 2004.
Comments in this news release that are not historical facts are
forward-looking statements that involve risks and uncertainties which could
cause actual results to differ materially from those projected in the
forward-looking statements. These risks and uncertainties include, but are not
limited to, general economic trends, changes in consumer demand or purchase
patterns, delays or interruptions in the flow of merchandise between the
Company's distribution centers and its stores or between the Company's suppliers
and same, a disruption in the Company's data processing services, costs and
delays in acquiring or developing new store sites, and other contingencies
discussed in the Company's Securities and Exchange Commission filings. Fred's
undertakes no obligation to release revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unforeseen events, except as required to be reported
under the rules and regulations of the Securities and Exchange Commission.
-MORE-
FRED Reports Fourth Quarter, Year-end Results
Page 3
March 11, 2004
FRED'S INC.
Unaudited Financial Highlights
(in thousands, except per share amounts)
13 Weeks 13 Weeks
Ended Ended
January 31, February 1, Percent
2004 2003 Change
------------- ------------- ---------
Net sales $ 378,023 $ 325,324 16.2%
Operating income $ 19,141 $ 16,097 18.9%
Net income $ 13,156 $ 10,866 21.1%
Net income per share:*
Basic $ 0.34 $ 0.28 21.4%
Diluted $ 0.33 $ 0.28 17.9%
Average shares outstanding:*
Basic 38,976 38,410 1.5%
Diluted 39,823 39,110 1.8%
52 Weeks 52 Weeks
Ended Ended
January 31, February 1, Percent
2004 2003 Change
------------- ------------- ---------
Net sales $ 1,302,650 $ 1,103,418 18.1%
Operating income $ 51,691 $ 42,677 21.1%
Net income $ 34,426 $ 28,216 22.0%
Net income per share:*
Basic $ 0.89 $ 0.74 20.3%
Diluted $ 0.87 $ 0.72 20.8%
Average shares outstanding:*
Basic 38,754 38,255 1.3%
Diluted 39,652 39,251 1.0%
* All share and per share amounts have been adjusted to reflect the distribution
of a three-for-two stock split on July 1, 2003.
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FRED Reports Fourth Quarter, Year-end Results
Page 4
March 11, 2004
FRED'S INC.
Unaudited Fiscal 2003 Fourth Quarter Results
(in thousands, except per share amounts)
13 Weeks 13 Weeks
Ended Ended
January 31, % of February 1, % of
2004 Total 2003 Total
-------------- -------- ------------- ---------
Net sales $ 378,023 100.0% $ 325,324 100.0%
Cost of goods sold 273,787 72.4% 235,404 72.4%
-------------- --------- ------------- ---------
Gross profit 104,236 27.6% 89,920 27.6%
Selling, general and administrative expenses 85,095 22.5% 73,823 22.7%
-------------- --------- ------------- ---------
Operating income 19,141 5.1% 16,097 4.9%
Interest expense, net 108 0.0% 149 0.0%
-------------- --------- ------------- ---------
Income before income taxes 19,033 5.1% 15,948 4.9%
Provision for income taxes 5,877 1.6% 5,082 1.6%
-------------- --------- ------------- ---------
Net income $ 13,156 3.5% $ 10,866 3.3%
============== ========= ============= =========
Net income per share:*
Basic $ 0.34 $ 0.28
============== =============
Diluted $ 0.33 $ 0.28
============== =============
Weighted average shares outstanding:*
Basic 38,976 38,410
============== =============
Diluted 39,823 39,110
============== =============
Unaudited Fiscal 2003 Results
(in thousands, except per share amounts)
52 Weeks 52 Weeks
Ended Ended
January 31, % of February 1, % of
2004 Total 2003 Total
-------------- --------- ------------- ---------
Net sales $ 1,302,650 100.0% $ 1,103,418 100.0%
Cost of goods sold 934,331 71.7% 798,441 72.4%
-------------- --------- ------------- ---------
Gross profit 368,319 28.3% 304,977 27.6%
Selling, general and administrative expenses 316,628 24.3% 262,300 23.7%
-------------- --------- ------------- ---------
Operating income 51,691 4.0% 42,677 3.9%
Interest expense, net 398 0.0% 203 0.0%
-------------- --------- ------------- ---------
Income before income taxes 51,293 4.0% 42,474 3.9%
Provision for income taxes 16,867 1.3% 14,258 1.3%
-------------- --------- ------------- ---------
Net income $ 34,426 2.7% $ 28,216 2.6%
============== ========= ============= =========
Net income per share:*
Basic $ 0.89 $ 0.74
============== =============
Diluted $ 0.87 $ 0.72
============== =============
Weighted average shares outstanding:*
Basic 38,754 38,255
============== =============
Diluted 39,652 39,251
============== =============
* All share and per share amounts have been adjusted to reflect the distribution
of a three-for-two stock split on July 1, 2003.
-MORE-
FRED Reports Fourth Quarter, Year-end Results
Page 5
March 11, 2004
FRED'S INC.
Unaudited Balance Sheet
(in thousands)
January 31, February 1,
2004 2003
------------- --------------
ASSETS:
Cash and cash equivalents $ 4,741 $ 8,209
Inventories 239,962 193,506
Receivables and other current assets 28,245 26,175
------------- --------------
Total current assets 272,948 227,890
Property and equipment, net 137,231 113,219
Other noncurrent assets 4,005 4,739
------------- --------------
Total assets $ 414,184 $ 345,848
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 74,799 $ 58,489
Current portion of indebtedness 18 285
Current portion of capital lease obligation 725 620
Accrued expenses 18,477 19,484
Current deferred tax liability 11,486 10,559
Income taxes 1,251 0
------------- --------------
Total current liabilities 106,756 89,437
Indebtedness 5,603 458
Deferred tax liability 6,380 676
Capital lease obligations 1,686 2,052
Other noncurrent liabilities 2,441 2,455
------------- --------------
Total liabilities 122,866 95,078
Shareholders' equity 291,318 250,770
------------- --------------
Total liabilities and shareholders' equity $ 414,184 $ 345,848
============= ==============
-END-